Trade Liberalization, Firm Performance and Labor Market Outcomes in the Developing World, what Can We Learn from Micro-Level Data?

We review the micro-level evidence on the effects of trade and investment liberalization in the developing world. The basic findings are the following. There is evidence of trade-induced productivity gains. These gains mainly stem from output share reallocations among firms with different productivity levels and are larger in import competing sectors. There is no evidence of significant scale efficiency gains. There is evidence of a strong pro-competitive effect of trade liberalization. There is no evidence either of learning-by-exporting effects or of beneficial spillover effects from foreign owned to local firms. There is evidence of skill upgrading induced by the reallocation of market shares in favor of plants with higher skill-intensity. There is no evidence either of trade-induced increases in labor demand elasticities or of substantial employment contraction in import competing sectors.